India is a market of staggering dimensions and overwhelming potential for parties involved in payments. Its potential was very clear to me during my recent visit to the country and discussions with Indian payment organisations.
Here are some basic figures:
- India has a population four times the size of the US;
- It has an estimated 600 million potential prepaid customers;
- It has a rapidly growing middle class of between 350 and 400 million.
The middle class – in itself greater than the total US population and growing by 5% per annum – is developing a keen taste for spending and is beginning to demand convenient and safe access to funds, thereby representing a significant short term opportunity for electronic payments growth.
In addition, the 600 million-strong prepaid sector provides a strong opportunity for growth. This segment is made up of the lower segment of the Indian population that mainly pays for low value items and services – transactions are typically below 750 Indian Rupees (below $15).
Another critical consumer segment is India’s vast un(der)banked population, particularly in the rural areas that are cut off from basic banking services and other non-cash based payment mechanisms and electronic banking.
Getting there quicker
The Reserve Bank of India has announced a cut in the maximum merchant discount rate on debit card transactions from 1 July 2012. Effectively reducing the rate by 50%, this is a significant move in the Indian Government’s efforts to increase cost efficiencies of electronic payments and to drive cash replacement. The mandate will require payment providers more than ever to look for innovations to reduce costs in the value chain in order to keep the model sustainable for all stakeholders.
There’s no doubt that the country can speed up its efforts to bring the mass market to payments by looking seriously at low value payment options. I also believe mobile technologies should feature strongly in any payment plans for the vast and unconnected rural areas.
I was excited by the vast opportunity that India affords the payments industry. My key learnings for anyone interested in helping to grow its payments infrastructure include:
- Innovate in phases. India needs a future-proof solution that is channel and form-factor agnostic and which can be introduced across its many markets and regions. The sheer size of the task requires a planned, measured approach which can be scaled up.
- Be smart about EMV. Use a secure off-line solution or a low value payment plug-in that aggregates transactions, reducing the cost of individual transactions. This would bring the technology to the lower value payments market which makes up so much of the transactions space in India.
- Mobile for merchants. Examining the latest smartphone-based and other technologies could help combat the cost of traditional POS terminals for merchants, particularly in rural, underdeveloped areas.
- Be positive. EMV migration is currently seen as a costly regulatory requirement for the banks. Instead it can be made positive by examining ways, such as aggregation of low value payments, to make sure EMV investment generates increased income through incremental payment volumes.
Nebo Djurdjevic is the chief executive of Cardis International, a technology firm dedicated to improving the economics of low value electronic payments within the broader trend of moving toward a cashless society.